The ERISA consultants at the Retirement Learning Center Resource regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings plans. We bring Case of the Week to you to highlight the most relevant topics affecting your business.
A recent call with a financial advisor from California is representative of a common inquiry related to compliance deadlines. The advisor asked:
“I’m confused by the compliance deadlines for various provisions of Prohibited Transaction Exemption (PTE) 2020-02related to providing investment advice to retirement investors. Can you summarize the compliance deadlines, please?”
Highlights of Discussion
Absolutely, but first, let me set the stage. Financial professionals and institutions seeking to comply with PTE 2020-02 must satisfy the following six steps.
1. Provide advice in accordance with the “Impartial Conduct Standards,” which mandate that advice be given in the best interest of the retirement investor at a reasonable price without any misleading statements.
2. Acknowledge in writing their fiduciary status under ERISA and the Internal Revenue Code.
3. Describe in writing the services to be provided and any material conflicts of interest that may exist;
4. Adopt policies and procedures prudently designed to ensure compliance with the Impartial Conduct Standards and that mitigate conflicts of interest.
5. Conduct an annual retrospective review of their compliance with the requirements and produce a written report that is certified by one of the financial institution’s senior executive officers; and
6. If the advice involves a rollover recommendation, then:
• document the reasons that a rollover recommendation is in the best interest of the retirement investor; and
• disclose the justification for the rollover in writing to the retirement investor.
Initially, PTE 2020-02 was set to fully apply on Dec. 21, 2021. Field Assistance Bulletin (FAB) 2021-02 delays the enforcement of key elements of PTE 2020-02. FAB 2021-02 states that through Jan. 31, 2022, the DOL will not pursue cases against advisors utilizing PTE 2020-02, provided they make a good faith effort to follow the three Impartial Conduct Standards outlined in the exemption (see #1 above).
Further, if the advice involves a rollover recommendation (see #6 above), the DOL will not enforce the rollover documentation and disclosure requirements of the PTE through June 30, 2022. All other requirements of the exemption, however, will be subject to full enforcement as of Feb. 1, 2022.
Conclusion
Financial professionals and organizations seeking relief under PTE 2020-02 should take note of the different compliance deadlines that apply as a result of FAB 2020-02.
Any information provided is for informational purposes only. It cannot be used for the purposes of avoiding penalties and taxes. Consumers should consult with their tax advisor or attorney regarding their specific situation.
©2022, Retirement Learning Center, LLC. Used with permission.
